The limited facts made available demonstrated to a majority of the tribunal that CEMSA had been treated in a less favorable manner than domestically owned resellers/exporters of cigarettes, a de facto discrimination by the Mexican Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico, hereinafter SHCP), which is inconsistent with Mexico's obligations under Article 1102 of NAFTA.
In addition, the tribunal found that CEMSA had been denied registration as an export trading company, even though three other cigarette-export trading companies (including the Poblano Group) had been swiftly granted registration.
Cigarette manufacturers declined to sell to CEMSA and other exporters; leading CEMSA to buy its cigarettes from volume retailers (VRs).
The SHCP decided that CEMSA had incorrectly received IEPS tax rebates between January 1996 and September 1997.
In April 1999, CEMSA filed a notice of arbitration at the International Center for Settlement of Investment Disputes (ICSID) in Ottawa pursuant to Chapter 11, Article 1120, of the North American Free Trade Agreement (NAFTA).
In its application, CEMSA asked for damages roughly equivalent to US$ 50 million and raised three arguments.
is whether rebates have in fact been provided for domestically owned cigarette exporters while denied to a foreign re-seller, CEMSA.
304) SHCP then denied CEMSA's registration request and demanded CEMSA to pay some $25 million in rebates that it had received.
308) It also held that the three-year time limit on Chapter 11 claims began to run in 1996 when CEMSA experienced obstacles from the SHCP, and therefore claimants' arguments for relief from Mexico's action prior to 1996 were barred from consideration.
311) This was because (1) Mexican law required CEMSA to respond in litigation to SHCP's demand, and (2) CEMSA had since requested a termination of that litigation, leaving Chapter 11 arbitration as its only real opportunity for remedy.
Further, NAFTA does not require Mexico to create a market for resellers like CEMSA to export cigarettes, and in fact Mexico may have a legitimate public policy reason for limiting such activity.
However, Mexico violated Article 1102 when SHCP gave other similarly situated domestic cigarette resellers rebates but denied the same rebates to CEMSA, even though the domestic resellers could not comply with the invoice requirements either--this was de facto discrimination according to the tribunal.